Disappointment that the weekend failed to deliver a Greek debt deal was helping to keep recent risk asset optimism in check on Monday, the FT reports. The FTSE All-World equity index was flat, industrial commodities were mixed and some funds were moving into US Treasuries, nudging the 10-year yield down from two-week highs, off 1 basis point to 2.01 per cent. With many Asian markets closed for the lunar new year holiday, Europe inherited a generally lacklustre session. One standout feature was a burst of buying in Japan-based gold futures, which has helped the cash market to breach resistance at $1,666 an ounce. The bullion was now up 0.9 per cent to $1,673 an ounce. The FTSE Eurofirst 300 index was down just 0.01 per cent, supported by New York’s close at session highs on Friday.

Kate is FT AV’s Asia Correspondent. She joined FT Alphaville in mid-2011 after carrying out various roles in the FT’s London office since 2005: interactive editor, companies reporter, and founding editor of the FT’s Energy Source blog.

Many of the world’s central banks are offloading US Treasury bonds a record pace, the FT says. Of the $10tn in outstanding US Treasuries, foreign holders account for some 48 per cent of the market, with official investors such as central banks a significant presence. Since late August these investors have cut their Treasury holdings by $95bn, with $68bn sold in the past six weeks as the dollar has strengthened and emerging market economies have experienced outflows.Sales by foreign central banks, though, have been overshadowed by the Fed’s buying under its “quantitative easing” programme, the eurozone crisis propelling investors to the relative safety of US sovereign debt and proposed capital rules pushing US banks to own more government bonds. Bloomberg also looks at the latest Tic data, saying China reduced its holdings of Treasuries in November for a second month, shrinking by 0.1 per cent to $1.13tn, while holdings of Treasuries by UK buyers, who are often seen as a proxy for Chinese investors operating away from the mainland, rose to a record after declining in October for the first time since June 2010.

Traders were so far delivering a mixed and indecisive global session after the Federal Reserve left policy unchanged amid lingering eurozone worries, the FT reports. The FTSE All-World equity index was down 0.4 per cent and industrial commodity prices were mostly softer, with copper off 1.1 per cent to $3.40 a pound and Brent crude dipping 0.6 per cent to $108.80 a barrel. Wholesale risk aversion was certainly not the predominant theme, however. Gold was rebounding 0.3 per cent to $1,636, after tumbling nearly $80 in the previous two days. The dollar index, which tends to display an inverse correlation to investor optimism, was fractionally lower – though still near 11-month highs – while US Treasuries were also seeing some profit taking after their good run, nudging up yields. Meanwhile, the FTSE Eurofirst 300 was down 0.4 per cent, but S&P 500 futures pointed to Wall Street adding 0.3 per cent at the open.

The US congressional committee responsible for striking a deficit reduction deal ended its work without an agreement on Monday, delaying any solution to America’s debt problems and setting the stage for a sharp clash over budgetary policy ahead of the 2012 elections, the FT reports. The announcement by Representative Jeb Hensarling and Senator Patty Murray, the Republican and Democratic co-chairs of the panel, came just after the close of trading on US financial markets on Monday, prompting a wave of disappointed reactions from across the political spectrum and business. The failure of the committee also stoked fresh concerns that political gridlock could diminish the prospects for passage of economic stimulus measures to prop up the world’s largest economy in 2012, and threaten a partial government shutdown as early as next month. Mr Hensarling and Ms Murray sought to strike a conciliatory note in their joint statement. “Despite our inability to bridge the committee’s significant differences, we end this process united in our belief that the nation’s fiscal crisis must be addressed and that we cannot leave it for the next generation to solve,” they said.

Kate is FT AV’s Asia Correspondent. She joined FT Alphaville in mid-2011 after carrying out various roles in the FT’s London office since 2005: interactive editor, companies reporter, and founding editor of the FT’s Energy Source blog.

The US Treasury would accommodate a possible Federal Reserve stimulus to drive down long-term interest rates, the FT says, citing a person familiar with the Treasury’s thinking. The effectiveness of ‘Operation Twist’ would depend on how the Treasury reacted. If it pushed the other way, and took advantage of the Fed’s buying to sell more long-dated debt, then it could minimise the effect on interest rates. However, the Treasury would be unlikely to respond to falling long-term interest rates with a sudden shift in the pattern of debt issuance, even though one of the Treasury’s strategic goals is to increase the average term of the US national debt.

Equity markets ended another volatile week with sentiment somewhat soured by worries over politicians’ and monetary guardians’ strategy for dealing with a weak global economy and the eurozone fiscal crisis, the FT reports. The FTSE All-World equity index was down 0.6 per cent following a 0.7 per cent drop for the Asia-Pacific region and as the FTSE Eurofirst 300 declined of 0.7 per cent. S&P 500 futures suggested Wall Street would open flat. Such caution and indecision could be seen across asset classes where mixed signals were being sent on the market’s attitude to risk. So, while the perceived haven of gold was higher, another bolt-hole, US Treasuries were slightly weaker, with benchmark yields up 2 basis points to 2.0 per cent. In commodities, copper was down 0.7 per cent to $4.10 a pound, but Brent crude was up 0.3 per cent to $114.94 a barrel. Currencies were little changed, though the risk aversion in equity markets was seeping into forex with the Aussie dollar paring gains, the US dollar index up 0.1 per cent and the euro down 0.1 per cent to $1.3864 after Thursday’s 1.5 per cent slide.

Markets were cautiously positive, with traders apparently reluctant to chase the previous session’s rally with the same vigour ahead of a slew of headline risks, the FT’s markets overview reports. The FTSE All-World equity index was up just 0.03 per cent as Europe opened with a 0.2 per cent loss and after the Asia-Pacific region added 0.1 per cent. The commodity, forex and sovereign debt sectors were exhibiting greater wariness. Traditional havens such as the US 10-year note werestronger, nudging the yield down 2 basis points to 2.02 per cent, while the dollar index was up 0.2 per cent and the euro was down 0.1 per cent to $1.4077. Niggling concerns about global demand saw copper dip 0.2 per cent to $4.11 an pound, leaving Brent crude down 33 cents at $115.47. Meanwhile the gold bugs were “bargain” hunting, the precious metal rebounding 1.5 per cent after Wednesday’s 3 per cent dive. S&P 500 futures pointed to Wall Street’s benchmark index giving back 3 points of Wednesday’s 33-point, or 2.9 per cent, surge. The rally had come as investors felt the slump at the start of September – the S&P 500 fell 4.4 per cent in three sessions – had been overdone. Some slightly better macroeconomic data and an easing of tensions in the eurozone after the German constitutional court allowed Berlin to participate in the bloc’s various bail-outs, added juice to the bounce.

We’ve been harping on for a while now about how a scarcity of quality collateral in the market (read US Treasuries) has been wreaking havoc in the repo markets — and how QE-related large scale asset purchases have only added to the problem.

We’ve noted too that these factors require a major investor rethink when it comes to how funding markets operate, and also in how to interpret the Treasury yield curve. Read more

The yield on benchmark US Treasury 10-year notes approached the lowest level for six decades as bond traders grew increasingly confident that slumping equities and the eurozone debt crisis would compel the Federal Reserve to enact a new programme of bond purchases later this month, the FT reports. The yield on 10-year notes touched 1.91 per cent on Tuesday, just above the low of 1.9 per cent set in 1950 according to Barclays’ Equity Gilt study. Mounting concerns about the outlook for the US economy, particularly on the jobs front, have heightened expectations that the central bank will sell short-term Treasuries, or allow them to mature, and use the proceeds to buy long-term paper – a policy dubbed “Operation Twist” as it narrows the difference between short- and long- dated yields. Strategists and traders have for some weeks debated the merits of the Fed implementing a version of the original Operation Twist, which was tried back in the 1960s during the Kennedy administration. The 10-year Treasury yield determines US mortgage and corporate borrowing rates and a sustained period of low interest rates is seen as helping to boost the economy. In recent weeks, the difference between two- and 10-year yields has moved to its flattest level since March 2009. The yield curve now stands at 1.77 percentage points, in from 2.36 percentage points at the start of August.

Equities were rallying on Wednesday, cracking September’s slump, as some investors bet that fears about global growth and the eurozone fiscal mess were overdone, the FT reports. There was green across the screen from Asia to Europe as the mood switched to “risk on” after several sour sessions. “Havens” such as US Treasuries, the dollar and gold were falling back, while US stock futures suggested Wall Street’s S&P 500 would open with a gain of 0.9 per cent. The FTSE All-World index was up 1.2 per cent, boosted by a 2.2 per cent advance for Europe in early skirmishing and following a 2.3 per cent rebound in the Asia-Pacific region. The global benchmark has halted a four-session slide that saw it lose nearly 6 per cent in the first four trading days of the month. The main causes of those falls will be all too familiar to traders: concerns about a weakening global economy and the fallout from the budgetary stress in Europe. Weak US jobs numbers on Friday helped spark fresh concerns about the former. But a better than expected US service sector report on Tuesday and Wednesday’s firmer than forecast Australian GDP data have somewhat ameliorated the anxiety in that regard.

Cardiff writes mostly about US macroeconomic issues, with daily excursions into other topics about which he claim no expertise. Before Alphaville, Cardiff spent a little more than two years as a reporter at Dow Jones Financial News covering investment banking, asset management, and private equity. Along the way he has written freelance pieces on a variety of other topics from behavioural psychology to Muay Thai, the latter also being a personal interest that involves frequently getting kicked in the shins (and torso, and head).

The chatter on Friday in response to the stomach-punching payrolls is that we’re headed for Operation Twist Part Deux — number 13 on our list of Fantasy Fed options — though not outright QE3 in the form of large scale asset purchases. At least not yet.

But that was already our guess after the last minutes were released. We had been expecting the debate to have already moved beyond the timing of the New Twist and toward its form. Read more

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

Bill Gross, manager of the world’s largest bond fund for Pimco, has admitted that it was a mistake to bet so heavily against the price of US government debt in an FT interview. Gross emptied his $244bn Total Return Fund of US government-related securities earlier this year in a high-profile call that has backfired as the bond market has rallied. As of Monday, Pimco’s flagship fund ranked 501th out of 589 bond funds in its category. See also FT Alphaville.

Cardiff writes mostly about US macroeconomic issues, with daily excursions into other topics about which he claim no expertise. Before Alphaville, Cardiff spent a little more than two years as a reporter at Dow Jones Financial News covering investment banking, asset management, and private equity. Along the way he has written freelance pieces on a variety of other topics from behavioural psychology to Muay Thai, the latter also being a personal interest that involves frequently getting kicked in the shins (and torso, and head).

In this post we are going to direct readers to some publicly available information about Lyxor’s (Societe Generale’s asset management arm) fixed income ETFs. It’s a point that possibly applies to other European synthetic providers too. This information has been publicly available for a long while. It is in no way unusual or suddenly available. We just thought it might be interesting to highlight. Read more

Gold has powered to a fresh record, revelling in investors’ fears of a sharp global economic slowdown that have laid waste to growth-focused assets, the FT reports. The bullion was up 2.3 per cent to $1,865 an ounce, having earlier touched $1,867; a surge that was also predicated on worries over the fiscal difficulties of developed nations and in particular how this was being expressed in the financial system of the eurozone. The same concerns were boosting perceived haven bonds, with German, US and UK yields sitting near record or multi-decade lows. The yield on the US 10-year note, which on Thursday breached 2 per cent for the first time since 1950 before paring its move, was down 2 basis points to 2.04 per cent. In contrast, the FTSE All-World equity index was down 1.6 per cent, taking its losses since May’s cyclical peak to more than 19 per cent. Asia has fallen 3.2 per cent, with South Korea’s Kospi bearing the brunt with a 6.2 per cent stumble, despite the authorities in Seoul suspending programme trading in an attempt to slow the slide.

Benchmark US borrowing costs fell below 2 per cent for the first time in at least 60 years as markets took fright at increasing signs of global economic weakness and equities worldwide, the FT reports. US 10-year Treasury bonds, the linchpin of the global financial system used to price many assets around the world, yielded as little as 1.97 per cent on Thursday, their lowest since April 1950, according to Global Financial Data. There were also savage falls for German and British borrowing costs, which hit record lows. “It is a moment. Why can’t Treasury yields have a 1 per cent handle given where growth is?” said Steven Major, global head of fixed income research at HSBC. The catalyst for the latest bout of risk aversion – which saw stock markets plunge globally and gold hit another record high – was weaker-than-expected US manufacturing and unemployment data. That came on top of a slew of bad growth numbers from Europe as well as rising fears about the funding of European banks. For more on how US Treasuries and high powered money may be becoming a Giffen good, see FT Alphaville.

Benchmark US borrowing costs fell below 2 per cent for the first time in at least 60 years as markets took fright at increasing signs of global economic weakness and equities worldwide, writes the FT. Bank share prices once again bore the brunt of the equity market sell-off. France’s Société Générale fell 12 per cent and Dexia of Belgium 14 per cent as short-selling bans failed to stem the sell-off. The Dax-30 index in Germany ended 5.8 per cent down, while the FTSE 100 in London was off 4.5 per cent. In New York, the S&P 500 closed 4.4 per cent lower. The Dow was off 3.7 per cent, below the 11,000 barrier. Reuters reports that Asian markets were faring little better once they opened on Friday — the Nikkei was down 2.1 per cent and the MSCI index down 2.9 per cent. Lex says the last thing we need is QE3 and we should all just wait and see. If only it were all so easy.

Markets were repricing assets to reflect a riskier environment as worries about global growth prospects and the lingering eurozone fiscal crisis continued to chip away at investor resolve, the FT reports. Equities were sliding and commodities prices were lower while action in currencies and bonds typified reticence, with perceived havens such as US Treasuries and the dollar receiving funds. The FTSE All-World equity index was down 0.8 per cent, Brent crude was off 0.2 per cent to $110.46 a barrel, the dollar index was up 0.2 per cent and the euro is down 0.3 per cent to $1.4397. S&P 500 futures forecast a 1 per cent fall for Wall Street. In Europe the FTSE Eurofirst 300 opened with a loss of 1.2 per cent as banks and miners lost ground. No fresh catalysts appeared to be behind the deterioration in sentiment; rather, it was a continuation of the malaise that has seen the FTSE All World index slip 15 per cent from its cyclical peak at the start of May.

Cardiff writes mostly about US macroeconomic issues, with daily excursions into other topics about which he claim no expertise. Before Alphaville, Cardiff spent a little more than two years as a reporter at Dow Jones Financial News covering investment banking, asset management, and private equity. Along the way he has written freelance pieces on a variety of other topics from behavioural psychology to Muay Thai, the latter also being a personal interest that involves frequently getting kicked in the shins (and torso, and head).

This time he trains his eye on the possible implications of the recent announcements by China that this time it means what it says about diversifying its reserve holdings out of USD assets. Sure. Read more

Strange, fast, markets. The S&P 500 closed at 1,172.53, up 53 points, or 4.74 per cent. That’s the biggest one day rise since 20 October, 2008. 10-year Treasury yields touched crisis lows. And the US dollar… don’t even ask.

Kate is FT AV’s Asia Correspondent. She joined FT Alphaville in mid-2011 after carrying out various roles in the FT’s London office since 2005: interactive editor, companies reporter, and founding editor of the FT’s Energy Source blog.

Leaving aside the volatility and growth fears, who is really compelled to sell Treasuries as a result of the S&P downgrade?

The answer, when it has all played out, might go some way to explaining just how powerful the ratings agencies are right now. Or, how powerful they should be. The last few days have seen somepassionatedebate on that subject. Read more

Tracy Alloway used to be deputy editor of FT Alphaville. Here she learned the details of derivatives, the absurdities of accounting and the various structures of ... erm ... structured finance. She now covers big US banks for the FT paper, including Goldman Sachs and Morgan Stanley. She pops up on FT Alphaville every once in a while.

The spectre of an imminent US default on its debt disappeared as legislation to increase America’s borrowing authority cleared its last remaining hurdle in the Senate and was signed by President Barack Obama, the FT says. The last-minute congressional approval of an increase in the debt ceiling came after weeks of aggressive political rhetoric and fraught negotiations over fiscal policy that carried the country to the brink of a potential economic calamity, threatening its triple A credit rating and the status of Treasury bonds as a safe harbour for global investors. Bloomberg adds that for all the debt ceiling debate, the people with the most at stake made more money buying Treasury securities in July than any month this year.

Kate is FT AV’s Asia Correspondent. She joined FT Alphaville in mid-2011 after carrying out various roles in the FT’s London office since 2005: interactive editor, companies reporter, and founding editor of the FT’s Energy Source blog.

China’s central bank governor urged Washington on Wednesday to act responsibly to deal with its debt issues, saying uncertainty in the US Treasuries market will undermine the international monetary system and hamper global growth, Reuters reports. The remarks by Zhou Xiaochuan, head of the People’s Bank of China, were China’s first official response to the passage of the US debt ceiling deal. Mr Zhou welcomed US progress in dealing with its debt problems but urged Washington to take what he called “concrete and responsible” measures to bolster confidence in Treasuries, of which China is a major buyer. Mr Zhou said China would watch developments related to the US debt-ceiling increase while continuing to diversify and strengthen risk management of its foreign exchange reserves, the WSJ reports.